Taxes are the most important topic for most high income earners & entrepreneurs.
To do the best planning, you need to stay in front tax law changes.
And big changes are coming in 2026 as tax provisions sunset.
For example, tax rates are set to increase when/if this sunset happens.
Who knows if they will so... let's walk through both the good and the bad that may be coming.
The bad:
This is a huge change since the vast majority of people take the standard deduction.
It will go down to $12,700 for couples.
This means more taxes paid for most people if they are not able to itemize as much.
AMT stands for alternative minimum tax and it's an added tax on capital gains (3.8%)
It will now apply to way more people due to a much lower exemption and phase out amount.
For those that do not know, QBI stands for Qualified Business Income Deduction. It's a tax deduction that allows eligible self-employed and small-business owners to deduct up to 20% of their qualified business income on their taxes.
This is set to disappear, which is something that many business owners will not be happy about as QBI helps a ton.
The credit will go down to $1,000 per child and start to phaseout at $75k individual or $110k married.
The lifetime exclusion amount will go from $13.99 to about half of that at the end of 2025.
This is HUGE for high income earners - you need planning around this, now.
Right now marginal rates are 10%, 12%, 22%, 24%, 32%, 35% and 37%
But they will be moving back to 10%, 15%, 25%, 28%, 33%, 35% and 39.6%
Somewhat higher for everyone.
Corporate taxes went down with the TCJA And those are set to stay down and not sunset back in 2026.
Okay so now that we know the bad, lets go through some of the good:
SALT means State and local tax deduction and it is capped at $10k right now.
If the change happens, then cap will go away, but deductions will phaseout at higher income levels due to the Pease limitation (phaseout begins at $261,500 for individuals, $313,800 for couples).
Right now you are limited to interest on $750k of qualified debt. Soon that will go up to $1mil and also cover $100k of home equity interest. This is important as standard deductions go down!
This could be for deduction on certain investment expenses, job search expenses, uniforms, unreimbursed work-related expenses. This is applicable once deductions exceed > 2% of AGI.
Taxpayers will be allowed to deduct a personal exemption for themselves, their spouse, and each of their dependents from their adjusted gross income (unlike right now where you cannot do that).
It's safe to say that there seems to be more bad than good coming. Higher taxes and more taxes for most people is the reality we are facing if no changes occur
Make sure you are planning and preparing the best you can here to pay the least amount of taxes over your lifetime.
Financial Advisor